Aussie Job Creation Soars. Is a Rate Hike Imminent?

Yesterday I wrote… “Today, we’ll see the latest labor report from Australia. In recent months, the jobs data has consistently surprised to the upside each month, so it’s not like going out on a limb to say that I expect the job creation to be better than the +15,000 that’s forecast.”

Well… June employment in Australia showed an increase of 45,900 jobs (see above the forecast was for +15,000)… So… Once again, Australia pushed the envelope on job creation. Australia now has more people in paid employment than at any other time in its history!

What’s driving this job creation in Australia, when here in the US we can’t catch a break (except if you like to count the census workers)? Well, remember back in the ’90s when the US economy was cooking with gas, and they would say, “It’s the economy, stupid”… Well, we could twist that to say about Australia’s job creation, “It’s China, stupid”… OK… I’m not calling anyone “stupid”… Maybe CPI, but that’s not a “someone”!

I would have to say that this strong employment report will raise the rate hike flag for the markets once again, and we can see that with a 1-cent gain in the Aussie dollar (AUD) already this morning. Of course, I was ahead of the markets, which are now jumping on my “rate hike for August” bandwagon!

The Big Dog, euro (EUR) hit a 6-week high overnight of 1.2670… Again, I truly don’t think this rally – which has brought the euro from 1.18 to this 6-week high – has strong legs… The euro is NOT out of the woods by any stretch of the imagination… But having said that, I have to admit that I’m impressed with the Big Dog’s ability to rally in the face of those calling for the euro to return to parity with the dollar.

If all things were equal… And the European debt got treated the same as the US debt, I would say that I believe the euro would end this year back at 1.30… But… And that’s a big “but”… All things are NOT treated the same… And so, the Big Dog remains on the tenterhooks…

And speaking of the Big Dog… The European Central Bank (ECB) is meeting this morning… This will be a non-event, even with the statement following the “no change in rates” announcement. I expect ECB President, Trichet to be asked about bond purchases and things like that, but I suspect Trichet to play this close to the vest, and attempt to veer the focus toward the upcoming bank stress tests.

Yesterday, I pointed out that Canadian dollars/loonies (CAD) and Swiss francs (CHF) were trading at the same level versus the dollar… (0.9440) Well… These two went in different directions yesterday… And for the first time in a couple of weeks, the loonie was the better performer on the day. The franc was not chopped liver… But the loonie outperformed the franc on the day. The loonie got a boost from a small rise in the price of oil, and a return to $1,200 for gold!

In my continuing story of “an inconvenient debt,” today, the US will announce their latest funding needs with the auction amounts in 3, 10, and 30-year Treasuries… I suspect the amounts will be close to: $35 billion in 3-year Treasuries, $21 billion in 10-year Treasuries, and $13 billion in 30-year Treasuries… That’s a total of $69 billion… That’s just awful, folks… I know the dolts of the world don’t believe this is any big deal, that the US can just continue to issue Treasuries and the world will buy them forever…

Whenever I hear that, I think of that famous line by Margaret Thatcher, “The problem with Socialism is that you eventually run out of other people’s money.”

OK… Back to the auctions for a minute… The 10-year yield is 2.97% this morning, so buyers of that note will get for their fun and enjoyment less than 3% for the next 10-years… (I’m sure that in 3 years yields will be so high, that these people will be so sorry they bought these notes.)

While in Australia… They issued $1 billion of a 4.75% Aussie government bond due in 2016… And their 10-year has a yield of over 5%! Now… Tell me… Knowing the US’s funding problems, and their future debt problems with the unfunded liabilities, doesn’t an Aussie government bond make more sense?

OK… I could go on for days and weeks and months and years… No wait! I HAVE gone on for days and weeks and months and years talking about the accumulating debt in the US!

I was in a meeting yesterday and the “really Big Boss” in Jacksonville, asked me about the story about China buying a ton of Japanese bonds recently… I said that, “I don’t think this is a big deal, in that, this money would probably have bought Eurozone bonds, but with all the fluctuations of the euro recently, the Chinese probably just bought Japanese bonds to keep away from the euro right now.” I should have gone on to say that this is probably a big reason the Japanese yen (JPY) has been so strong recently… Central bank buying is always good for a currency, as long as it’s not the “home team” central bank doing the buying!

While we’re kicking around the cobblestones in Asia, I heard our Tim Smith, talking to a customer yesterday, about Singapore dollars (SGD)… I thought, “Chuck, you haven’t talked about Sing dollars for a long time, you should do that tomorrow.” So… Here I am, rock you like a Hurricane!

Sing dollars are one of my fave currencies to talk about when having “cocktail conversations”… The only fly in the ointment with Sing dollars is that the Monetary Authority, which monitors the movements of the sing dollar, has its hands tied to the rest of Asia. You see, these countries are all in competition with each other regarding their exports. So… Not one country can allow their currency to get too strong and out of whack with the other Asian currencies, or else their exports will suffer.

Now… Having said that… The export biz for Asia, has slowed quite a bit since the US depression began in 2008. And these Asian countries have had to learn to generate domestic demand, and have the ability to export to neighboring Asian countries… But they are doing it, and thus the growth in Asia, without the US and Europe!

That brings me to China once again… I know I’ve been the Lone Ranger when it comes to believing that China was NOT going to collapse, as most analysts keep saying. I think I’ll be proven correct once again, regarding China in the near future, but until then, I suggest you not pay attention to these guys running around like Chicken Little regarding China…

Now, I’m not there (in China), so how could I know that I’m right and they will be proven wrong? Well… I just rely in the history, here… For over eight years, economists and analysts have predicted or forecast a collapse in China and that would decimate the rallies in commodities and the commodity currencies, only to be proven wrong as time went by. I suggest that this time will be no different…

That… And the fact that a trading partner in China via Australia, sent me a note that the negativity in China has been vastly overstated. They expect China’s economy to continue to expand, but at a moderated pace.

And isn’t a “moderated pace” better than the hyped up economy that China has experienced in the past? And… At a “moderated pace” the need to raise rates in China will dissipate… Thus allowing the economy to grow without a governor.

The Bank of England (BOE) met this morning, and kept rates unchanged… There was a grassroots/ whispering campaign that was getting some notice from economists that were calling for a rate hike… Look… Inflation in the UK is going to take off sooner or later, might as well nip that in the bud, eh?

And that brings me to the US… We’ve followed the UK for the past couple of years… Why would that change now? So… When inflation begins to show up in the UK, it won’t be too long before we see it here in the US; and when it begins here in the US, it won’t be of the garden variety… The Fed will be slow to recognize it, and it will take off like “Rockin’ Rollercoaster” at Disney World! 0-60 in a matter of seconds!

Then there was this… From The Washington Post…

The US Federal Reserve is considering taking a stronger role in boosting economic growth, with Congress deadlocked on how to cope with a troubling slowdown. Options being weighed include buying more mortgage securities and cutting interest paid to banks that are putting funds on deposit with the central bank from 0.25% to zero, giving financial institutions more incentive to loan.

Oh boy! I read that and thought of the famous quote from Ronald Reagan when he said that the scariest words are: “I’m from the government, and I’m here to help”

To recap… The currencies held on to gains from yesterday in the overnight sessions, and the Big Dog, euro, hit a 6-week high overnight. Aussie job creation was better than forecast as I suspected, and the Aussie dollar has rallied 1-cent. The ECB meets today, while the BOE already met and kept rates unchanged. The Canadian dollar rallied on a firming of oil prices and a return to $1,200 in gold.

About Chuck Butler:

Chuck Butler is the Managing Director EverBank Global Markets. The father of the Daily Pfennig® newsletter, Chuck has a career in investment services and currencies spanning 35+ years. His tacit knowledge of the global markets along with his inventive spirit has led to the creation of many distinct and innovative currency-based products. A respected analyst of the currency market, Chuck has made frequent appearances on MarketWatch, USAToday, CNNfn, Bloomberg Television, and CNBC as well as quoted in The Wall Street Journal, US News & World Report, and The Chicago Tribune.